Crypto Market Braces for Turbulence Ahead of Fed’s Decision

Key Insights

  • Bitcoin’s 15% Q3 drop contrasts with Nasdaq’s 2% gain, hinting at economic shifts.
  • Fed’s rate decision splits experts between hikes and pauses.
  • Wall Street’s Bitcoin ETF interest grows while SEC delays and Grayscale wins spark discussions.

Mike McGlone, a strategist at Bloomberg Intelligence, recently shed light on a concerning trend in the crypto world. The leading cryptocurrency, Bitcoin, witnessed a 15% decline in the third quarter until September 1st. In contrast, the Nasdaq 100 Stock Index reported a 2% rise during the same period. This disparity between Bitcoin and the tech index might suggest potential economic shifts.

McGlone commented, “A dip in the benchmark crypto might hint at a stock market drawdown or a lagging trend.” Moreover, he emphasized the historical link between Bitcoin’s performance and the Japanese stock market index Nikkei. The latter achieved a 33-year high in June. Consequently, Bitcoin might see a resurgence, echoing Nikkei’s path.

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However, upcoming central bank policies could challenge this positive outlook. McGlone expects Bitcoin to face headwinds, mainly due to anticipated monetary tightening by the central bank. Additionally, he speculates that the Fed might hike interest rates to combat inflation in their imminent meeting. Such a move could ripple through the crypto market, affecting Bitcoin and its peers.

Fed’s Decision: Diverse Predictions Abound

The Federal Open Market Committee (FOMC) meeting, slated for September 19-20, has garnered significant attention. Opinions, however, remain divided. Post the “hawkish pause” in June, some experts lean towards a rate hike, citing the ongoing high inflation rate. On the other hand, a section of analysts advocates for a pause, expressing concerns over potential banking crises and a pessimistic economic outlook.

Yet, a consensus emerges among most observers: a rate hike is likely by the end of 2023. If it bypasses September, they anticipate a move in November or December. In the meantime, Jerome Powell has kept his cards close to his chest regarding the upcoming decision.

Bitcoin’s Price Dynamics: A Delicate Balance

Bitcoin traded at $26,137 at press time, marking a 1.34% increase within a week, its lowest since mid-June. Keith Alan, co-founder of Material Indicators, notes a tussle between Bitcoin optimists and skeptics. The positive momentum suffered a blow when the US Securities and Exchange Commission (SEC) delayed the spot Bitcoin ETF decision.

BTC/USD 1-day price chart (Source: CoinMarketCap)

Prominent Wall Street entities, such as ARK Invest, BlackRock, and Fidelity, are in line with their Bitcoin ETF applications. Interestingly, BlackRock’s application in May nudged Bitcoin’s price from $25,000 to $31,000, setting a trend for others to watch.

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However, the SEC is under the lens after a court sided with Grayscale. The court questioned the SEC’s rationale behind rejecting Grayscale’s proposal and called for a reevaluation. While many in the crypto sphere view a spot Bitcoin ETF approval as pivotal, JP Morgan analysts offer a counter-narrative. They highlight that similar ETFs outside the US have yet to draw significant investor interest. Furthermore, Bitcoin funds, whether futures-based or physical, remained under the radar as of Q2 2021.

Despite varying viewpoints, the potential approval is seen by many as a gateway to increased institutional investment in crypto, marking a shift in industry dynamics.